Cellulosic ethanol, a gasoline produced from non-food biomass, is the latest
renewable-energy trend to hit Michigan. In a bid to host the nation’s first
operating cellulosic ethanol plant, Gov. Jennifer Granholm has enticed
Massachusetts-based Mascoma Corp. to Chippewa County with state financial
incentives that include a $15 million grant and research support from state
universities. Unfortunately, cellulosic ethanol’s potential as an environmental
and economic boon is far from certain, and taxing Michigan businesses and
residents to fund this dubious project is a bad deal.

Ironically, the cellulosic ethanol program may have a mixed environmental
impact. Mascoma plans to tap Michigan’s considerable forest resources by using
wood pulp as cellulosic feedstock. This process will create a lively market for
forestry residue, increasing the price of wood pulp. Since cellulosic ethanol
will be part of the gasoline market, its price — and thus the price of
cellulosic feedstock — will be tightly linked to that of oil. Obviously, oil
prices have shot through the roof, which means that the cellulosic ethanol
market may begin to draw higher quality lumber, not just waste wood. Higher
demand will lead to a higher price, which will stimulate more supply — in this
case, more trees being felled to fuel the fire.

If
cellulosic ethanol does succeed, of course, providers of raw cellulosic
materials will be able to invest in sustainable ways to meet the larger demand
for wood, such as replanting forests or starting tree farms. Still, it is hard
to imagine environmentalists letting even a "green" industry cause such
widespread disruption of wildlife habitats. If cellulosic ethanol does not prove
viable in the long-term, however, these renewable alternatives will not have a
chance to take root. In this case, forests harvested in the initial surge may
not be restored, resulting in state-subsidized environmental damage.

And the
success of the cellulosic ethanol venture is hardly guaranteed. While
demonstration production plants for cellulosic ethanol exist, no full-scale
plant has yet been built. The U.S. Department of Commerce notes that cellulosic
ethanol costs twice as much to produce as corn ethanol, which itself requires
hefty government subsidies to remain competitive. Furthermore, while ethanol is
popular now, much cleaner options such as hydrogen fuel cells are in the
pipeline and may soon drive ethanol the way of Betamax and Laserdisc.

None of
this is good news for Michigan residents. A strong economy requires a thriving
business environment, but Michigan businesses already face
heavy taxes and
oppressive regulation. Raising taxes on existing companies to subsidize
unproven ones is no growth strategy; a wiser investment would be to give tax
relief to existing businesses. Grants like those to Mascoma only squeeze stable
businesses to shower benefits on companies that apparently cannot stand without
government support.

Nor will
the grant help Michigan’s employment rate. Employment requires employers, and
laying more taxes on existing businesses can only darken the jobs outlook.
Regardless of optimistic forecasts of the project’s "creating" several hundred
jobs, the true winner is Mascoma, not Michigan as a whole.

In
fairness, Michigan government is not alone in betting on cellulosic ethanol;
General Motors Corp. has also invested in the Mascoma plant. Still, this does
not mean that taxpayers should be forced to finance it as well. Unlike private
investors, taxpayers cannot choose whether to make riskier or safer investments
— they must pay for whatever projects the state selects. And unlike private fund
managers, the state typically makes financial decisions based on political, not
economic, calculations. Not surprisingly, the Michigan Economic Development
Corp.’s
investment portfolio is not stellar. Furthermore, the MEDC grant is not
really an investment, since the taxpayers stuck with the $15 million bill will
not directly profit even if the project succeeds.

Certainly
$15 million is small relative to the entire state budget. But $10 million here
and $20 million there add up to a large deficit and oppressive taxes. Treating
$15 million dollars as chump change will not promote economic success.

Michigan
taxpayers do not stand to benefit if the state buys the honor of having the
first commercial cellulosic ethanol plant. The true solution to Michigan’s
struggling economy lies not in frittering away millions of taxpayer dollars on
favored businesses, but in giving every business room to thrive.

#####

Hannah K. Mead is a communications intern for
the Mackinac Center for Public Policy, a research and educational institute
headquartered in Midland, Mich. Permission to reprint in whole or in part is
hereby granted, provided that the author and the Center are properly cited.